Thursday's trading session on Nasdaq was a red one for Arm Holdings, which slumped 12% to $168.62, after the chipmaker's quarterly earnings last night.
The numbers, on the face of it, looked strong; except the outlook commentary was too underwhelming for traders, and upon closer inspection showed slowing royalty growth.
Moreover, being the latest to report in a chipmaker sector which has been pressured in recent sessions, it landed in a suboptimal moment for sentime
A closer look at the numbers
Arm, the semiconductor designer, reported total revenue of $1.44 billion for the second quarter of fiscal 2027, ended 30 September, up 27% year-on-year and a record for the period.
The quarter marked Arm's fifth consecutive period of more than 20% year-on-year growth.
License and other revenue reached $773 million, up 50% year-on-year and roughly $100 million above expectations, while royalty revenue rose 8% to $670 million, its highest-ever second quarter figure.
Data-centre royalties doubled year-on-year, with Arm-based server architecture accounting for more than 50% of deployments at major cloud providers and expected to exceed 60% by the end of calendar 2026; physical-AI royalties, covering automotive and robotics, grew 50%, while edge-AI royalties were roughly flat amid higher memory prices pressuring smartphone volumes.
Non-GAAP operating income rose 37% to $638 million, lifting the non-GAAP operating margin to 44.2%, up 300 basis points year-on-year, with non-GAAP earnings per share of $0.52, up 33%. Annualized contract value grew 12% year-on-year, and free cash flow over the trailing twelve months reached $1.1 billion.
Arm said its confidence in revenue from its AGI CPU has increased to up to $2 billion across fiscal 2027 and 2028, with first commercial deliveries on track for the fourth quarter of fiscal 2027.
Outlook
For the third quarter, Arm guided to revenue of $1.54 billion, plus or minus $50 million, implying roughly 24% year-on-year growth at the midpoint, with license and other revenue expected to grow a little over 50% year-on-year and royalty revenue to grow in the low single digits year-on-year.
The company guided to non-GAAP operating expense of approximately $825 million and non-GAAP earnings per share of $0.56, plus or minus $0.04.
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